BlackRock plans new active sector ETFs curated by robots

Trevor Hunnicutt

3 Min Read

NEW YORK (Reuters) - BlackRock Inc (BLK.N) is turning to the robots for its next big investment idea.

The world’s largest asset manager, which oversees nearly $6 trillion, has hatched plans for a set of exchange-traded funds that would let a computer program choose and classify stocks, according to preliminary filings with the U.S. Securities and Exchange Commission.

Investors often rely on sector definitions determined by index companies like S&P Dow Jones Indices and MSCI Inc (MSCI.N), who control the Global Industry Classification Standard.

Amazon.com Inc (AMZN.O) is not considered an information technology company, but is listed alongside auto parts sellers and other retailers as a consumer discretionary stock. Tobacco companies are considered a consumer staple.

But unlike traditional passive funds that rely on those indexes, BlackRock’s new funds will use advanced data science techniques - such as machine learning - to choose which companies go where.

“The classification system allows for a company to be classified into multiple sectors rather than being assigned solely to a single sector, reflecting the multi-dimensional nature of these companies,” BlackRock said in the filings.

“Sector constituents are expected to evolve dynamically over time to reflect changing business models.”

A BlackRock spokeswoman declined to comment beyond those documents. The company has for years been using data science techniques in its actively managed funds for large and institutional investors, but has been bringing more of those techniques to funds intended for everyday investors.

The new funds also mark another move by BlackRock to introduce new products reliant on its own intellectual property rather than through the tracking of a benchmark built by a traditional index provider. In July, BlackRock launched bond ETFs tracking benchmarks built by itself for the first time.

The robotic ETFs come as S&P and MSCI both are engineering a massive shakeup of their 11-sector schematic.

The shrinking telecommunications sector is being ditched in favor of a gleaming new “Communication Services” sector that is likely to include at least some of the so-called FANG stocks - Facebook Inc (FB.O), Amazon, Netflix Inc (NFLX.O) and Google parent Alphabet Inc (GOOGL.O) - along with traditional telecom or media players, such as AT&T Inc (T.N) and Walt Disney Co (DIS.N).